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on Macroeconomics |
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Issue of 2014‒10‒03
63 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Daisuke Ikeda (Bank of Japan) |
| Abstract: | This paper integrates an asset price bubble and agency costs in firms' price-setting decisions into a monetary DSGE framework. Amplified by nominal wage rigidities, an asset price bubble causes an inefficiently excessive boom. Inflation, however, remains moderate in the boom, because a loosening in financial tightness lowers the agency costs and adds downward pressure on inflation. Stabilizing inflation makes the excessive boom even excessive in the short run. The optimal monetary policy calls for monetary tightening to restrain the boom at the cost of greater volatility in inflation. |
| Keywords: | Optimal monetary policy; Asset price bubbles |
| JEL: | E44 E52 |
| Date: | 2013–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-4&r=mac |
| By: | Bianchi, Javier (Federal Reserve Bank of Minneapolis); Bigio, Saki (Columbia University) |
| Abstract: | We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in turn determines the supply of credit and the money multiplier. We study how different shocks to the banking system and monetary policy affect the economy by altering the trade-off between profiting from lending and incurring greater liquidity risk. We calibrate our model to study quantitatively why banks have recently increased their reserve holdings but have not expanded lending despite policy efforts. Our analysis underscores an important role of disruptions in interbank markets, followed by a persistent credit demand shock. |
| Keywords: | Monetary policy; Liquidity; Capital requirements |
| JEL: | E44 E51 E52 G1 |
| Date: | 2014–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:503&r=mac |
| By: | Javier Bianchi (Federal Reserve Bank of Minneapolis, University of Wisconsin, NBER); Saki Bigio (Columbia University) |
| Abstract: | We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in turn determines the supply of credit and the money multiplier. We study how different shocks to the banking system and monetary policy affect the economy by altering the trade-off between profiting from lending and incurring greater liquidity risk. We calibrate our model to study quantitatively why banks have recently increased their reserve holdings but have not expanded lending despite policy efforts. Our analysis underscores an important role of disruptions in interbank markets, followed by a persistent credit demand shock. |
| Keywords: | Banks, monetary policy, liquidity, capital requirements |
| JEL: | G1 E44 E51 E52 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-018&r=mac |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Anca-Ioana Sirbu (Western Washington University); Mark Weder (University of Adelaide, Australia) |
| Abstract: | We examine the plausibility of expectations-driven cyclical fluctuations in an otherwise standard one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale in production. Due to a dominating wealth effect, our model is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news impulses to future consumption demand or government spending on goods and services. When the economy is subject to anticipated total factor productivity or investment-specific technology shocks, the relative strength of the intertemporal substitution effect needs to be enhanced for our model to exhibit positive macroeconomic co-movement and business cycle statistics that are consistent with the data. |
| Keywords: | News Shocks; Aggregate Demand; Business Cycles. |
| JEL: | E32 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201414&r=mac |
| By: | Yulia Vymyatnina; Evgeniya Goryacheva |
| Abstract: | Using monthly and quarterly data for 2000 – 2012 for Belarus, Kazakhstan and Russia we estimate monetary policy rules for these countries. The aim of our study is to find out similarities and differences in monetary policy practices in these countries in order to evaluate potential problems in switching to unified macroeconomic policy that is envisaged within the Common Economic Area. We analyze official statements of the Central Banks, dynamics of major macroeconomic indicators, estimate modified monetary policy rules and conclude that Kazakhstan and Russia have similar monetary policy, while Belarus will have to change most of its practices in case the unified monetary policy is introduced in the Common Economic Area. |
| Keywords: | Customs Union, Common Economic Area, monetary policy rules, inflation, Russia, Belarus, Kazakhstan |
| JEL: | E52 F42 |
| Date: | 2014–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:eus:wpaper:ec0514&r=mac |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Juin-Jen Chang (Academia Sinica); Jhy-Yuan Shieh (Soochow University); Wei-Neng Wang (Soochow University) |
| Abstract: | This paper examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two-sector real business cycle model with positive productive externalities in investment. When government purchases of con- sumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public-consumption share plays no role in the modeliÌs local dynamics, and that a su¢ ciently high public-investment share can stabilize the economy against endogenous belief-driven cyclical aÌuctuations. When each type of government spending is postulated as a constant proportion of the economyiÌs total output, we Önd that there exists a trade-o§ between public consumption versus investment expenditures to yield saddle-path stability and equilibrium uniqueness. |
| Keywords: | Government Spending; Equilibrium (In)determinacy; Business Cycles |
| JEL: | E32 E62 O41 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201305&r=mac |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Liang, J. Nellie |
| Abstract: | In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy’s traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial stability considerations independently of its inflation and real activity goals, because risks to future financial stability are increased by the buildup of financial vulnerabilities from persistent accommodative monetary policy when the economy is close to potential. We review monetary policy transmission channels and financial frictions that give rise to this trade-off between financial conditions and financial stability, within a monitoring program across asset markets, banking firms, shadow banking, and the nonfinancial sector. We focus on vulnerabilities that affect monetary policy’s risk-return trade-off, including 1) pricing of risk, 2) leverage, 3) maturity and liquidity mismatch, and 4) interconnectedness and complexity. We also discuss the extent to which structural and time-varying macroprudential policies can counteract the buildup of vulnerabilities, thus mitigating monetary policy’s risk-return trade-off. |
| Keywords: | risk-taking channel of monetary policy; monetary policy transmission; monetary policy rules; financial stability; financial conditions; macroprudential policy |
| JEL: | E52 G01 G28 |
| Date: | 2014–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:690&r=mac |
| By: | S. Tolga Tiryaki |
| Abstract: | This paper explores the sectoral dimension of emerging market business cycles by building a two-sector small open economy real business cycle model featuring a working capital requirement, variable capital utilization and imported inputs in production. The primary finding is that the price of imported inputs and nontradable sector productivity are the two most important sources of macroeconomic fluctuations in a typical emerging market economy. Interest rates and the price of imported final goods also play significant role in driving investment and import fluctuations. The model also produces significant sectoral asymmetry, especially in response to interest rate shocks. Variable capital utilization acts as a strong propagation mechanism. |
| Keywords: | Business cycles, Emerging markets, Imported inputs, Capital utilization |
| JEL: | E32 F32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1433&r=mac |
| By: | Finn E. Kydland (Department of Economics, University of California-Santa Barbara (UCSB); National Bureau of Economic Research (NBER)); Peter Rupert (Department of Economics, University of California-Santa Barbara (UCSB)); Roman Sustek (School of Economics and Finance Queen Mary; Centre for Macroeconomics (CFM)) |
| Abstract: | Housing construction, measured by housing starts, leads GDP in a number of countries. Measured as residential investment, the lead is observed only in the US and Canada; elsewhere, residential investment is coincident. Variants of existing theory, however, predict housing construction lagging GDP. In all countries in the sample, nominal interest rates are low ahead of GDP peaks. Introducing fully-amortizing mortgages and an estimated process for nominal interest rates into a standard model aligns the theory with the observations on starts; one-period loans are insu±cient to generate the lead. Longer time to build then makes residential investment cyclically coincident. |
| Keywords: | Residential investment, housing starts, business cycle, mortgage costs, time to build |
| JEL: | E22 E32 R21 R31 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1423&r=mac |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Hassanzadeh, Ali (Asian Development Bank Institute); Prasetyo, Ahmad Danu (Asian Development Bank Institute) |
| Abstract: | We estimate the response of Asian stock market prices to exogenous monetary policy shocks using a vector error correction model. In our paper, monetary policy transmits to stock market price through three routes: money by itself, exchange rate, and inflation. Our result points to the fact that stock prices increase persistently in response to an exogenous easing monetary policy. Variance deposition results show that, after 10 periods, the forecast error variance of beyond 53% of the Tehran Stock Exchange Price Index (TEPIX) can be explained by exogenous shocks to the US dollar–Iranian rial exchange rate, while this ratio for exogenous shocks to Iranian real gross domestic product was only 17%. We argue that such evidence can be accounted for by an endogenous response of the stock prices to the monetary policy shocks. |
| Keywords: | asian stock market; monetary policy shocks; vector error correction model |
| JEL: | E44 G10 G12 |
| Date: | 2014–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0497&r=mac |
| By: | António Afonso; Luís Martins |
| Abstract: | This paper provides new insights about the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data for 14 European Union countries over the period 1970-2012. Different measures for assessing fiscal consolidations based on the changes in the cyclically adjusted primary balance were calculated. A similar ad-hoc approach was used to compute monetary expansions, in order to include them in the assessment of non-Keynesian effects for different budgetary components. Panel Fixed Effects estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed in the cases of general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer and expenditure-based consolidations contribute positively for its success, whilst the opposite is the case for tax-based ones. |
| Keywords: | fiscal consolidation, monetary expansion non-Keynesian effects, panel data, probit |
| JEL: | C23 E21 E5 E62 H5 H62 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp122014&r=mac |
| By: | Federico di Pace (University of St Andrews); Kaushik Mitra (University of St Andrews); Shoujian Zhang (University of St Andrews) |
| Abstract: | It is well known that the standard search and matching model with Rational Expectations (RE) is unable to generate amplification in unemployment and vacancies. We show that relaxing the RE assumption has the potential to provide a solution to this well known unemployment volatility puzzle. A model in which agents use Recursive Least Square algorithms to update their expectations as new information becomes available is presented. Firms choose vacancies by making infinite horizon forecasts over (un)employment rates, wages and interest rates at each point in time. Firms have much greater incentive for vacancy posting because of overoptimism about the discounted value of expected profits at the time a positive TFP shock hits the economy. The model with adaptive learning is able to match the relative volatility of labour market variables in US data and the properties of forecast errors of unemployment rates obtained from the Survey of Professional Forecasters. |
| Keywords: | adaptive learning, bounded-rationality, search and matching frictions |
| JEL: | E24 E25 E32 J64 |
| Date: | 2014–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1408&r=mac |
| By: | Carine Nourry (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC) |
| Abstract: | We consider an OLG economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good which can be either consumed or used as capital. We prove that the existence of Pareto optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's (1986, Journal of Economic Theory, 40, 89-102) influential conclusion, this result suggests that some fiscal policy rules can prevent the existence of business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as it is announced. |
| Keywords: | Two-sector OLG model, multiple consumption goods, dynamic efficiency, Endogenous fluctuations, local indeterminacy |
| JEL: | C62 E32 O41 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1439&r=mac |
| By: | Naoyuki Yoshino (Asian Development Bank Institute (ADBI)); Farhad Taghizadeh-Hesary |
| Abstract: | “Abenomics†refers to the economic policies advocated by Prime Minister Shinzo Abe who became prime minister of Japan for a second time when his party, the Liberal Democratic Party, won an overwhelming majority at the general election in December 2012. Abenomics has “three arrows†: (i) aggressive monetary policy, (ii) fiscal consolidation, and (iii) growth strategy. The Japanese economy faces an aging population and expanding social welfare expenses. No other country has experienced Japan’s rapid growth of retired people. In this paper we will explain these three aspects of Abenomics and the current state of the Japanese economy, and examine what further remedies may be required if Japan is to recover from its long-term deflation. We look at such proposals as hometown investment trust funds and postponing of the retirement age through the introduction of a flexible wage rate system. |
| Keywords: | Abenomics, Japan, aging population, the Japanese economy, retired people, long-term deflation, a flexible wage rate system |
| JEL: | E52 E62 G21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:24362&r=mac |
| By: | Maarten DOSSCHE; Vivien LEWIS; Céline POILLY |
| Abstract: | We characterize optimal monetary policy in a New Keynesian search-and-matching model where multiple-worker firms satisfy demand in the short run by adjusting hours per worker. Imperfect product market competition and search frictions reduce steady state hours per worker below the efficient level. Bargaining results in a convex wage curve’ linking wages to hours. Since the steady-state real marginal wage is low, wages respond little to hours. As a result, firms overuse the hours margin at the expense of hiring, which makes hours too volatile. The Ramsey planner uses inflation as a instrument to dampen inefficient hours fluctuations. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces14.16&r=mac |
| By: | Marco Riguzzi |
| Abstract: | This essay examines the implications of openness to trade, capital mobility, and exchange rate flexibility for the fiscal multiplier. It presents a New Open Economy Macroeconomics model which is extended with the formation of "deep habits" by individual households. Hereby, an inter-temporal substitution effect is constituted, which causes monopolistically competitive producers to move their markups counter-cyclically and generates a positive fiscal multiplier of private consumption. The main outcome is a mechanism elaborating that both openness to trade and exchange rate flexibility limit the fiscal multiplier in equilibrium, and that capital mobility increases the fiscal multiplier in the short run. This dynamic model differs in its implications from a static model, such as the Mundell-Fleming model, and it is consistent with recent empirical findings. |
| Keywords: | Fiscal Multiplier; openness to trade; capital mobility; exchange rate flexibility |
| JEL: | E12 E62 F4 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1406&r=mac |
| By: | Giannone, Domenico (LUISS and Centre for Economic Policy Research); Monti , Francesca (Bank of England); Reichlin , Lucrezia (London Business School and Centre for Economic Policy Research) |
| Abstract: | This paper shows how and when it is possible to obtain a mapping from a quarterly dynamic stochastic general equilibrium (DSGE) model to a monthly specification that maintains the same economic restrictions and has real coefficients. We use this technique to derive the monthly counterpart of the well-known DSGE model by Galí, Smets and Wouters (GSW) for the US economy. We then augment it with auxiliary macro indicators which, because of their timeliness, can be used to obtain a nowcast of the structural model. We show empirical results for the quarterly growth rate of GDP, the monthly unemployment rate and GSW’s welfare-relevant output gap. Results show that the augmented monthly model does best for nowcasting. |
| Keywords: | Forecasting; temporal aggregation; mixed frequency data; large data sets |
| JEL: | C33 C53 E30 |
| Date: | 2014–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0509&r=mac |
| By: | Kilian, Lutz (University of Michigan CEPR); Vigfusson, Robert J. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over the course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3 percent cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5 percent cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1 percent. |
| Keywords: | Real GDP; nonlinearity; asymmetry; time variation; conditional response; prediction. |
| JEL: | E32 E37 E51 Q43 |
| Date: | 2014–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1114&r=mac |
| By: | Mark Egan (University of Chicago); Casey Mulligan (University of Chicago); Tomas Philipson (University of Chicago Harris School) |
| Abstract: | Many national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions†after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement. |
| Keywords: | national accounts, health economics, macroeconomics |
| JEL: | E01 I10 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2013-001&r=mac |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth - Economic Systems Finance and Financial Sector Development - Access to Finance Economic Theory and Research Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Currencies and Exchange Rates |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20013&r=mac |
| By: | Salvador Ortigueira |
| Abstract: | This paper assesses the optimality of U.S. fiscal policy from 1960 to 2010. With this purpose, we present a tractable neoclassical economy with a benevolent government and characterize time-consistent, optimal fiscal policy. We then compare the model's prescriptions for income tax rates and government expenditure with their empirical counterparts observed in the U.S. in this period. We find that U.S. income taxation and government consumption expenditure were in line with the model's prescriptions from 1960 to 2000. However, starting in the early 2000s and for the rest of the decade, U.S. fiscal policy trended in a direction opposite to that of the optimal policy prescribed by the model. In particular, U.S. income tax rates declined below their optimal rates, and government consumption expenditures as a share of GDP sharply increased above their optimal levels. By way of example, while our model prescribes a 10% reduction in the government consumption expenditure-to-GDP ratio between 2001 and 2010, the U.S. ratio increased by 23% in this period. |
| Keywords: | U.S. fiscal policy, Optimal fiscal policy |
| JEL: | E62 H24 H40 H50 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1418&r=mac |
| By: | Almut Balleer; Britta Gehrke; Christian Merkl |
| Abstract: | This paper reveals that German firms with working time accounts (WTAs) show a similar separation and hiring behavior in response to revenue changes as firms without WTAs. This finding casts doubt on the popular hypothesis that WTAs were the key driver of the unusually small increase in German unemployment in the Great Recession. One possible explanation is that firms substitute WTAs by short-time work. However, our results show no evidence for this substitution. Firms with WTAs use short-time work more to adjust labor over the cycle than firms without WTAs |
| Keywords: | Working time accounts, short-time work, business cycle |
| JEL: | E20 E24 J20 J30 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1955&r=mac |
| By: | Plosser, Charles I. (Federal Reserve Bank of Philadelphia) |
| Abstract: | President Charles Plosser gives his views on the economy and shares some thoughts about the stance of monetary policy. He also counters the view that rates cannot be raised because the labor market has not "completely" healed and discusses what he thinks are two major risks with this strategy. |
| Keywords: | Economic outlook; Monetary policy; |
| Date: | 2014–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpsp:103&r=mac |
| By: | Aaron Hedlund (Department of Economics, University of Missouri-Columbia) |
| Abstract: | This paper investigates the effects of estate taxation when firms cannot directly observe worker skill levels. Imperfect labor market signaling gives rise to an information externality that causes workers to free-ride off of others' human capital acquisition. Inherited wealth exacerbates the information externality because risk-averse workers with larger inheritances exert less effort to acquire skills. By reducing these inheritances, an estate tax induces greater skill acquisition effort, resulting in a higher number of skilled workers, and in many cases, increased wages and output. In a parametrized model, I establish that the optimal estate tax rate is significantly above zero. |
| Keywords: | information externalities, signaling, free-rider problem, labor markets, bequests, inheritance taxes |
| JEL: | D62 D82 E21 E24 E60 H21 |
| Date: | 2014–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1415&r=mac |
| By: | Carlos A. Ibarra (Universidad de las Américas, Puebla (UDLAP)) |
| Abstract: | After a two-year deceleration, in 2009 the Mexican economy suffered a contraction only matched, in its modern history, by the one recorded in 1995, in the wake of the peso crisis of December 1994. As in the latter crisis, the economy immediately bounced back, posting positive growth in 2010. Compared with the sharp rebound of exports, though, the overall recovery was weak, with GDP and industrial production surpassing (barely, in the latter case) their pre-crisis levels only in 2011. Motivated by these observations, the paper studies the transmission channels behind the 2009 recession in Mexico, the reasons for the weakness of the 2010?2011 recovery, and ?based on that analysis? some of the risks the country faces for sustaining stronger economic growth in the future. |
| JEL: | C22 E22 E58 F14 F21 F32 F41 O11 O54 |
| Date: | 2014–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:smx:wpaper:2014002&r=mac |
| By: | Hiroshi Kawata (Bank of Japan); Yoshiyuki Kurachi (Bank of Japan); Koji Nakamura (Bank of Japan); Yuki Teranishi (Bank of Japan) |
| Abstract: | This paper uses a financial macro-econometric model to compare and analyze the impact of macroprudential policy measures -- a credit growth restriction, loan-to-value and debt-to-income regulations, and a time-varying capital requirement -- on the economic dynamics through the financial cycle with the asset price bubble. Our analysis shows that although these macroprudential policy measures dampen economic volatility, it is possible that they reduce average economic growth, and the effects on the economic dynamics differ widely among macroprudential policy measures. In addition, the policy effects are changed dramatically by lags in recognizing the state of the economy. Our results also suggest that macroprudential policy measures can help contribute to more stable financial intermediation by raising the resilience of the financial system against risks. |
| Date: | 2013–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-3&r=mac |
| By: | Stefano Bosi (EPEE - Université d'Evry-Val d'Essonne); Mohanad Ismaël (University of Birzeit - University of Birzeit); Alain Venditti (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie) |
| Abstract: | We investigate the effects of collaterals and monetary policy on growth rate dynamics in a Ramsey economy where agents have heterogeneous discount factors. We focus on the existence of business-cycle fluctuations based on self-fulfilling prophecies and on the occurrence of deterministic cycles through bifurcations. We introduce liquidity constraints in segmented markets where impatient (poor) agents without collaterals have limited access to credit. We find that an expansionary monetary policy may promote economic growth while making endogenous fluctuations more likely. Conversely, a regulation reinforcing the role of collaterals and reducing the financial market imperfections may enhance the economic growth and stabilize the economy. |
| Keywords: | collaterals; heterogeneous agents; balanced growth; endogenous fluctuations; stabilization policies |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01059577&r=mac |
| By: | Ambrogio Cesa-Bianchi; M. Hashem Pesaran; Alessandro Rebucci |
| Abstract: | The 2007-2008 global financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on macroeconomic dynamics. This paper studies the interrelation between financial markets volatility and economic activity assuming that both variables are driven by the same set of unobserved common factors and that these factors affect volatility and economic activity with a time lag of at least a quarter. Under these assumptions, the paper analytically shows that volatility is forward looking and that the output equation of a typical VAR estimated in the literature is mis-specified. The paper empirically documents a statistically significant and economically sizable impact of future output growth on current volatility, and no effect of volatility shocks on business cycles, over and above those driven by the common factors. The evidence is interpreted as suggesting that volatility is a symptom rather than a cause of economic instability. |
| Keywords: | Production & Business Cycles, Financial Markets, Financial Crises & Economic Stabilization, Uncertainty, Realized volatility, GVAR, Great Recession, Identification, Business Cycle, Common Factors |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:86257&r=mac |
| By: | Tara M. Sinclair (Department of Economics/Institute for International Economic Policy, George Washington University); Hans Christian Müller-Dröge (Handelsblatt Newspaper); Herman Stekler (Department of Economics, George Washington University) |
| Abstract: | In this paper we present an evaluation of forecasts of a vector of variables of the German economy made by different institutions. Our method permits one to evaluate the forecasts for each year and then if one is interested to combine the years. We use our method to determine an overall winner for a forecasting competition across twenty-five different institutions for a single time period using a vector of eight key economic variables. Typically forecasting competitions are judged on a variable-by-variable basis, but our methodology allows us to determine how each competitor performed overall. We find that the Bundesbank was the overall winner for 2013. |
| Keywords: | Mahalanobis Distance, forecasting competition, GDP components, German macroeconomic data |
| JEL: | C5 E2 E3 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2014-15&r=mac |
| By: | Cross, Rod |
| Abstract: | This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural†variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed. |
| Keywords: | unemployment, natural rate hypothesis, hysteresis, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:547&r=mac |
| By: | World Bank Group |
| Keywords: | Finance and Financial Sector Development - Currencies and Exchange Rates Finance and Financial Sector Development - Debt Markets Economic Theory and Research Private Sector Development - Emerging Markets Private Sector Development - E-Business Macroeconomics and Economic Growth |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20026&r=mac |
| By: | R. Dixon; W. Griffiths; G.C. Lim |
| Abstract: | The purpose of this paper is to use a large data set comprising individual’s responses to survey questions about future economic conditions, unemployment and prices to explore lay people’s models of the economy and specifically their understanding of the relationship between unemployment and economic activity and also between unemployment and prices. The data is taken from the questionnaires used to form monthly indexes of consumer sentiments in Australia. We ask if the implied bivariate relationships are rational in the sense used by Muth (1961) and if they are consistent with the good-begets-good heuristic proposed by Leiser and Aroch (2009). We also ask if they are consistent with the actual operation of economic – and especially monetary – policy in Australia. We find that the data does provide some support for these hypotheses and for recent work in behavioural macroeconomics utilising the good-begets-good heuristic. |
| Keywords: | Consumer sentiments survey, Good-begets-good heuristic, Behavioural macroeconomics |
| JEL: | D1 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1179&r=mac |
| By: | Gortz, Christoph; Tsoukalas, John D. |
| Abstract: | An important disconnect in the news driven view of the business cycle formalized by Beaudry and Portier (2004), is the lack of agreement between different—VAR and DSGE—methodologies over the empirical plausibility of this view. We argue that this disconnect can be largely resolved once we augment a standard DSGE model with a ï¬nancial channel that provides ampliï¬cation to news shocks. Both methodologies suggest news shocks to the future growth prospects of the economy to be signiï¬cant drivers of U.S. business cycles in the post-Greenspan era (1990-2011), explaining as much as 50% of the forecast error variance in hours worked in cyclical frequencies |
| Keywords: | News shocks, Business cycles, DSGE, VAR, Bayesian estimation, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:542&r=mac |
| By: | Grieve, Roy H |
| Abstract: | The purpose of this paper is to highlight the curiously circular course followed by mainstream macroeconomic thinking in recent times. Having broken from classical orthodoxy in the late 1930s via Keynes’s General Theory, over the last three or four decades the mainstream conventional wisdom, regressing rather than progressing, has now come to embrace a conception of the working of the macroeconomy which is again of a classical, essentially pre-Keynesian, character. At the core of the analysis presented in the typical contemporary macro textbook is the (neo)classical model of the labour market, which represents employment as determined (given conditions of productivity) by the terms of labour supply. While it is allowed that changes in aggregate demand may temporarily affect output and employment, the contention is that in due course employment will automatically return to its ‘natural’ (full employment) level. Unemployment is therefore identified as a merely frictional or voluntary phenomenon: involuntary unemployment - in other words persisting demand-deficient unemployment - is entirely absent from the picture. Variations in aggregate demand are understood to have a lasting impact only on the price level, not on output and employment. This in effect amounts to a return to a Pigouvian conception such as targeted by Keynes in the General Theory. We take the view that this reversion to ideas which should by now be obsolete reflects not the discovery of logical or empirical deficiencies in the Keynes analysis, but results rather from doctrinaire blindness and failure of scholarship on account of which essential features of the Keynes theory have been overlooked or misrepresented. There is an urgent need for a critical appraisal of the current conventional macroeconomic wisdom. |
| Keywords: | Keynes’s General Theory, ‘classical’ macroeconomics, involuntary unemployment, the AD/AS model, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:546&r=mac |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | The paper examines the restructuring of expenditure in the first budget of the new government, and its feasibility. It compares the increase in budget allocations for key macroeconomic aggregates and sectoral plan outlays for the BJP and UPAII interim budget, and the change from the interim budget. Although overall tactics are aligned to the strategy articulated, the alignment is only marginal as yet, because the various strands are not well integrated to tell a coherent story of how they work together, and changes are not quantitatively significant. This is unfortunate because the macroeconomic changes are aimed at raising growth and jobs. There are also small beginnings in better systems, incentives, composition of public spending and public services. Apart from contributing to growth these help improve equality through capacity creation so the economy does not hit sectoral bottlenecks, as happened with the past excessive share of consumption-inducing government expenditures. A performance in relation to a promise based index ranking of post reform governments shows that although the UPAII was worst, the first congress government was the best, with the BJP led NDA coming in third. So the BJP has to do better this time if it wants to improve its ranking. |
| Keywords: | Budget; BJP; UPAII; strategy; restructuring; delivery |
| JEL: | H62 H63 E62 E65 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2014-028&r=mac |
| By: | Russell, Bill |
| Abstract: | Whether or not macroeconomics is a science depends on the scientific nature of macroeconomic theories and how the discipline responds when the empirical evidence fails to match the underlying assumptions and predictions of the theories. By way of an example, four conditions for macroeconomics to be a science are developed and used to examine the 'modern' theories of the Phillips curve. It is found that while the discipline in general maintains one condition it routinely violates the other three. This suggests the macroeconomics discipline has some way to go before it can call itself a 'pure science.' |
| Keywords: | Methodology, Phillips curve, inflation, structural breaks, nonstationary data, macroeconomics, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:539&r=mac |
| By: | Ronald Bachmann; Peggy Bechara; Anica Kramer; Sylvi Rzepka |
| Abstract: | Using harmonized micro data, this paper investigates the effects of the early phase (2008-10) of the recent economic crisis on transitions between labour market states in Europe. Our analysis focuses on individual heterogeneity, on the type of employment contract, and on crosscountry differences. Our analysis shows that specific worker groups, such as men and young persons, were particularly strongly hit by the crisis. Furthermore, more transitions from employment, and especially temporary employment, to unemployment were the main factor behind the rise in unemployment; while reduced unemployment outflows did not contribute substantially to the increase in unemployment during the early phase of the crisis. |
| Keywords: | Recession; labour market transitions; Markov transition matrices; worker heterogeneity |
| JEL: | J6 E24 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0499&r=mac |
| By: | Alexander Mayer-Gohde; ; ; |
| Abstract: | I construct risk-corrected approximations of the policy functions of DSGEmodels around the stochastic steady state and ergodic mean that are linear in the state variables. The resulting approximations are uniformly more accurate than standard linear approximations and capture the dynamics of asset pricing variables such as the expected risk premium missed by standard linear approximations. The algorithm is fast and reliable, requiring only the solution of linear equations using standard perturbation output. I examine the joint macroeconomic and asset pricing implications of a real business cycle model with stochastic trends and recursive preferences. The method is able to estimate risk aversion under these preferences using the Kalman filter, where a standard linear approximation provides no information and alternative methods require computationally intensive particle filters subject to sampling variation. |
| Keywords: | DSGE; Solution methods; Ergodic mean; Stochastic steady state; Perturbation |
| JEL: | C61 C63 E17 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2014-034&r=mac |
| By: | Leo Kaas (UNiversity of Konstanz - University of Konstanz); Patrick A. Pintus (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Simon Ray (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), Centre de recherche de la Banque de France - Banque de France) |
| Abstract: | The value of land in the balance sheet of French firms correlates positively with their hiring and investment flows. To explore the relationship between these variables, we develop a macroeconomic model with firms that are subject to both credit and labor market frictions. The value of collateral is driven by the forward-looking dynamics of the land price, which reacts endogenously to fundamental and non-fundamental (sunspot) shocks. We calibrate the model to French data and find that land price shocks give rise to significant amplification and hump-shaped responses of investment, vacancies and unemployment that are in line with the data. |
| Keywords: | financial shocks; labor market frictions |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01061446&r=mac |
| By: | Michele Gori (Dipartimento di Scienze per l'Economia e l'Impresa); Giorgio Ricchiuti (Dipartimento di Scienze per l'Economia e l'Impresa) |
| Abstract: | In this paper, we analyze a heterogeneous agent model in which the fundamental exchange rate is endogenously determined by the real markets. The exchange rate market and the real markets are linked through the balance of payments. We have analytically found that there exists at least a steady state in which the exchange rate is at its fundamental value and incomes of both countries are equal to the autonomous components times the over-simplified multiplier (as in the Income-Expenditure model). That steady state can be unique and always unstable when all agents act as contrarians, while when agents act as fundamentalists is unique but its stability depends on the reactivity of actors of the market. Finally, we show that the (in)stability of the economic system depends on both the reactivity of the markets and that of different type of agents involved. |
| Keywords: | Complex Dynamics; Heterogeneous Agents Models; Financial Markets. |
| JEL: | C62 D84 E12 E32 G02 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_15.rdf&r=mac |
| By: | Mauro Napoletano (OFCE Sciences Po, Skema Business School); Jean Luc Gaffard (OFCE Sciences Po, Skema Business School); Andrea Roventini (Università du Verona,Scuola Superiore Sant'Anna, Pisa & OFCE Sophia Antipolis) |
| Abstract: | We build an agent-based model to study how scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system.In that,scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study fiscal multipliers in response to dierent microeconomic shocks hitting the economy. We show that decit-spending scal policy dampens the eect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the scal multi-plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the effects of two different balanced budget rules.In the first type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that fiscal multipliers arevery low with both balanced-budget rules. Finally, we show that scal multipliersare higher into more leveraged economies. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1416&r=mac |
| By: | Tomas Havranek; Roman Horvath; Zuzana Irsova; Marek Rusnak |
| Abstract: | We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in rich countries and countries with high stock market participation substitute a larger fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of rich households or asset holders also find systematically larger values of the elasticity. |
| Keywords: | Bayesian model averaging, consumption, elasticity of intertemporal substitution, meta-analysis |
| JEL: | C83 D91 E21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2014/06&r=mac |
| By: | Finn Poschmann |
| Abstract: | Policymakers should not overreact to perceptions of corporate ‘dead money’, according to a new C.D. Howe Institute report. In “It’s Alive! Corporate Cash and Business Investment,” author Finn Poschmann points out that corporate cash holdings, as a share of output, have not grown since 2010 and that, contrary to popular opinion, business sector investment Canada-wide is growing at roughly the same pace as the economy. |
| Keywords: | Economic Growth and Innovation |
| JEL: | D22 G32 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:181&r=mac |
| By: | Charles Yuji Horioka (School of Economics, University of the Philippines Diliman) |
| Abstract: | This paper provides an introduction to the field of evolutionary economics with emphasis on the evolutionary theory of household behavior. It shows that the goal of evolutionary economics is to improve upon neoclassical economics by incorporating more realistic and empirically grounded behavioral assumptions and technological innovation and that the goal of the evolutionary theory of household behavior is to improve upon the neoclassical theory of household behavior by replacing the neoclassical assumption of selfish utility maximization with bounded rationality and satisficing and by incorporating the reaction of households to the introduction of new goods and services. The paper concludes with a brief discussion of loss aversion and self-interest vs. altruism. |
| Keywords: | Altruism, altruistic bequest motive, behavioral assumptions, behavioral economics, bequest motives, bounded rationality, consumption behavior, creative destruction, destructive technologies, dynastic bequest motive, evolution, evolutionary economics |
| JEL: | A12 B15 B25 B52 D11 D91 E21 O31 O33 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:201412&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Banks and Banking Reform Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20025&r=mac |
| By: | Tara M. Sinclair (Department of Economics/Institute for International Economic Policy, George Washington University); Jeff Messina (Department of Economics/Institute for International Economic Policy, George Washington University); Herman Stekler (Department of Economics, George Washington University) |
| Abstract: | Although there have been many evaluations of the Fed Greenbook forecasts, we analyze them in a different dimension. We examine the revisions of these forecasts in the context of fixed event predictions to determine how new information is incorporated in the forecasting process. This analysis permits us to determine whether there was an underutilization of information. There is no evidence of forecast smoothing, but rather that the revisions were sometimes in the wrong direction. |
| Keywords: | Federal Reserve; Forecast Evaluation; Forecast Revisions |
| JEL: | C5 E2 E3 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2014-14&r=mac |
| By: | Birgit Hansl; Damir Cosic; Olga Emelyanova; Mizuho Kida; Mikhail Matytsin; Ekaterine Vashakmadze |
| Keywords: | Banks and Banking Reform Macroeconomics and Economic Growth - Markets and Market Access Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Currencies and Exchange Rates |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19972&r=mac |
| By: | D'Amico, Stefania (Federal Reserve Bank of Chicago); Fan, Roger (Federal Reserve Bank of Chicago); Kitsul, Yuriy (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | In the special collateral repo market, forward agreements are security-specific, which may magnify demand and supply effects. We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the repo rates of all outstanding U.S. Treasury securities. We find an economically and statistically significant scarcity premium. This scarcity effect is quite persistent, passes through to Treasury market prices, and explains a significant portion of the flow-effects of LSAP programs, providing additional evidence for the scarcity channel of QE. Through the same mechanism, the Fed's reverse repo operations could alleviate potential shortages of high-quality collateral. |
| Keywords: | Treasury bonds; repo contracts; supply-demand factors; liquidity; Large Scale Asset Purchase programs; Treasury auctions |
| JEL: | C23 E43 G12 G19 |
| Date: | 2014–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-60&r=mac |
| By: | Ionescu, Felicia (Board of Governors of the Federal Reserve System (U.S.)); Simpson, Nicole B. (Colgate University) |
| Abstract: | The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results suggest that the relationship between credit status and college investment has important policy implications. Specifically, when borrowing limits in the government student loan program are relaxed (as implemented in 2008), college investment increases, but so does the riskiness of the pool of borrowers, leading to higher default rates in the private market for student loans. When general equilibrium effects are accounted for, the welfare gains experienced from a more generous government student loan program are negated. This compares to budget-neutral tuition subsidies that increase college investment and welfare. |
| Keywords: | College investment; credit status; student loans; default |
| JEL: | D53 E21 J22 J28 |
| Date: | 2014–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-66&r=mac |
| By: | Ishwarya Balasubramanian (Indira Gandhi Institute of Development Research) |
| Abstract: | The focus of this paper is to explore the role of spatial distribution of skills in explaining differential growth rates of employment across Indian districts between the years 2001 and 2011 by using data from Census of India. To measure skills across districts, we use the skill-content of occupations and the occupational distribution of workers across districts. We then model employment and population growth simultaneously taking into account spatial correlation of the endogenous variables. We find that a one standard deviation increase in (cognitive) skills is associated with 0.52 standard deviation increase in the growth rate of male main workers and a 0.42 increase in the growth rate of male non-farm main workers. However, female employment has significantly decreased in initially skilled regions. |
| Keywords: | Skills, Occupation, Employment Growth, Education |
| JEL: | J24 E24 J21 R12 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2014-033&r=mac |
| By: | Peter Martey Addo (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Università Ca' Foscari of Venice - Department of Economics, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Monica Billio (Università Ca' Foscari of Venice - Department of Economics); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We propose a transparent way of establishing a turning point chronology for the Euro-zone business cycle. Our analysis is achieve by exploiting the concept of recurrence plots, in this case distance plot, to characterize and detect turning points in the business cycle for any economic system. Firstly, we exploit the concept of recurrence plots on the US Industrial Production Index (IPI) series to serve as a beachmark for our analysis since there already exist reference chronology for the US business cycle, provided by the Dating Committee of the National Bureau of Economic Research (NBER). We then use this concept in constructing a turning point chronology for the Euro-zone business cycle. In particular, we show that this approach permits to detect turning points and study the business cycle without a priori assumptions on the statistical properties on the underlying economic indicator. |
| Keywords: | Recurrence Plots; economic cycles; turning points; Euro-zone |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00803457&r=mac |
| By: | Knut Are Aastveit (Norges Bank (Central Bank of Norway)); Andrea Carriero (Queen Mary, University of London); Todd E. Clark (Federal Reserve Bank of Cleveland); Massimiliano Marcellino (Bocconi University, IGIER and CEPR) |
| Abstract: | Small or medium-scale VARs are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism. This requires the VAR parameters to be stable over the evaluation and forecast sample, or to explicitly consider parameter time variation. The earlier literature focused on whether there were sizable parameter changes in the early 1980s, in either the conditional mean or variance parameters, and in the subsequent period till the beginning of the new century. In this paper we conduct a similar analysis but focus on the e ects of the recent crisis. Using a range of techniques, we provide substantial evidence against parameter stability. The evolution of the unemployment rate seems particularly different relative to its past behavior. We then discuss and evaluate alternative methods to handle parameter instability in a forecasting context. While none of the methods clearly emerges as best, some techniques turn out to be useful to improve the forecasting performance. |
| Keywords: | Bayesian VAR, Forecasting, Time-varying parameters, Stochastic volatility |
| JEL: | E17 C11 C33 C53 |
| Date: | 2014–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2014_13&r=mac |
| By: | Claudio Borio; Harold James; Hyun Song Shin |
| Abstract: | In analysing the performance of the international monetary and financial system (IMFS), too much attention has been paid to the current account and far too little to the capital account. This is true of both formal analytical models and historical narratives. This approach may be reasonable when financial markets are highly segmented. But it is badly inadequate when they are closely integrated, as they have been most of the time since at least the second half of the 19th century. Zeroing on the capital account shifts the focus from the goods markets to asset markets and balance sheets. Seen through this lens, the IMFS looks quite different. Its main weakness is its propensity to amplify financial surges and collapses that generate costly financial crises – its "excess financial elasticity". And assessing the vulnerabilities it hides requires going beyond the residence/non-resident distinction that underpins the balance of payments to look at the consolidated balance sheets of the decision units that straddle national borders, be these banks or non-financial companies. We illustrate these points by revisiting two defining historical phases in which financial meltdowns figured prominently, the interwar years and the more recent Great Financial Crisis. |
| Keywords: | excess financial elasticity, banking glut, current account, capital account, financial cycle, financial crises |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:457&r=mac |
| By: | Leandro Prados de la Escosura |
| Abstract: | Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed. |
| Keywords: | Growth measurement, Splicing GDP, Historical national accounts, Spain |
| JEL: | C82 E01 N13 O47 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:wp14-04&r=mac |
| By: | Atsushi Inoue; Lu Jin; Barbara Rossi |
| Abstract: | While forecasting is a common practice in academia, government and business alike, practitioners are often left wondering how to choose the sample for estimating forecasting models. When we forecast in ation in 2014, for example, should we use the last 30 years of data or the last 10 years of data? There is strong evidence of structural changes in economic time series, and the forecasting performance is often quite sensitive to the choice of such window size". In this paper, we develop a novel method for selecting the estimation window size for forecasting. Specically, we propose to choose the optimal window size that minimizes the forecaster's quadratic loss function, and we prove the asymptotic validity of our approach. Our Monte Carlo experiments show that our method performs quite well under various types of structural changes. When applied to forecasting US real output growth and in ation, the proposed method tends to improve upon conventional methods. |
| Keywords: | Macroeconomic forecasting; parameter instability; nonparametric estimation; band-width selection. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1435&r=mac |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Expenditure Policy Public Sector Economics Transport Economics Policy and Planning Governance - National Governance Transport Public Sector Development |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20020&r=mac |
| By: | G.A. Meagher; R.A.Wilson; E.Yerushalmi |
| Abstract: | In recent years, a series of European labour market forecasts have been produced on behalf of, and have been published by, the European Centre for the Development of Vocational Training (Cedefop). These forecasts were generated using a modular modelling approach containing two major components, a multi-sector macroeconomic model (E3ME) for 29 European countries, and a labour market extension (WLME). The countries are treated as an integrated system in E3ME but the extension is applied to each country separately. Forecasts of employment by industry are determined by E3ME; forecasts of employment by occupation and qualification are determined by the extension. Both components rely mainly on time series econometric techniques to generate their forecasts. Meagher et al.(2014) describe how the WLME can be replaced with an alternative extension (MLME) which uses computable general equilibrium (CGE) modelling techniques. Compared to the WLME, the MLME relies less on time series analysis and more on explicitly modelled economic behaviour, based on theoretical considerations. In this paper, the design of the hybrid E3ME-MLME model is advanced in two ways. Firstly, MLME is configured such that, in the absence of any shocks and assuming that the occupational labour markets clear, it reproduces the forecasts derived using WLME. In that case, the MLME forecasts can be regarded as providing enhanced information about the WLME forecasts. In particular, MLME provides forecasts of changes in relative wage rates which can be used to identify structural pressures in the markets for labour, pressures which remain only implicit in the WLME employment forecasts produced for Cedefop. Secondly, when suitably configured, MLME can be used to determine the deviations to the WLME employment forecasts which would result if some of the conditions (either explicit or implicit) under which they were derived are relaxed. In particular, MLME is used to determine how the forecasts would be different if wage rates are not sufficiently flexible to clear the occupational labour markets. The attendant surpluses and shortages revealed by MLME provide corroborative evidence on the underlying structural pressures in the Cedefop forecasts. Results are reported for the United Kingdom, Greece and the Netherlands. |
| Keywords: | Forecasting, CGE models, hybrid models, labour markets, structural imbalances |
| JEL: | C53 C58 D58 E27 J23 O41 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-249&r=mac |
| By: | World Bank |
| Keywords: | Law and Development - Tax Law Taxation and Subsidies Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Private Sector Development - E-Business Macroeconomics and Economic Growth |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20075&r=mac |
| By: | Michael K. Johnston; Robert G. King; Denny Lie |
| Abstract: | We present a new approach to the approximation of equilibrium solutions to nonlinear rational expectations models that applies to any order of approximation. The approach relies on a particular version of Taylor series approximations - the differential version - and on a scalar perturbation of the support of the entire history of shocks. The resulting solution for any order can always be directly cast in a linear state-space form, permitting the solution to be used for many practical applications such as forecasting, estimation, and computing impulse responses. Using the approach, we show that there cannot be multiple solutions in any order of approximation if the associated first-order approximate solution is determinate. Our approach can be used simply to verify key propositions of the earlier literature, to extend its range of applications, and to resolve puzzles left by it. While the paper only provides an explicit solution up to a third-order approximation, extensions to any higher order approximations are straightforward. |
| Keywords: | Solution methods, higher order approximations, perturbation, differential Taylor series approximation, nonlinear rational expectations models, pruning, DSGE |
| JEL: | C63 C68 E17 E37 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-59&r=mac |
| By: | World Bank Group |
| Keywords: | Finance and Financial Sector Development - Access to Finance Banks and Banking Reform Private Sector Development - Emerging Markets Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Finance and Financial Sector Development - Debt Markets |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20099&r=mac |
| By: | R.A.Susantha Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Ichihashi Masaru (Graduate School for International Development and Cooperation, Hiroshima University) |
| Abstract: | Government expenditure is one of the key fiscal policy variables that can influence economic growth in any country. Empirical studies examining the impact of government expenditure on economic growth have been heavily debated in recent years, in both developed and developing countries, and most investigations provided mixed results. This study recommends policy implications based on results derived from the following objectives: (1) to investigate the impact of government size on economic growth and determine which government budget will provide the biggest impact on economic growth; (2) to investigate the impact of each component of government investment and government consumption on economic growth. This study employed the Ordinary Least Squares (OLS) regression technique. Data from the Central Bank of Sri Lanka and World Bank from 1960 to 2013 were employed for the aggregated and disaggregated analysis. This study confirms that government size is positively associated with economic growth in Sri Lanka, while government investment provides the biggest impact on growth. Government consumption in Agriculture, Health, and Welfare, and government investment in Education, Agriculture, and Transportation and Communication, have a positive and statistically significant impact on economic growth. However, government consumption in Education and Defense has a negative, but significant, impact on economic growth. Moreover, this study found that private investment and exports promote economic growth of Sri Lanka. |
| Keywords: | Government Expenditure, GDP, Economic Growth, Sri Lanka |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:hir:idecdp:4-7&r=mac |
| By: | Takahiro Hirakawa (Bank of Japan); Junichiro Hatogai (Bank of Japan) |
| Abstract: | In business surveys, how to treat the data on which no responses are obtained (missing values) is an important theme in maintaining and improving the accuracy and reliability of statistics. The Short-Term Economic Survey of Enterprises in Japan (Tankan) enjoys a high response rate thanks to the cooperation of the enterprises it covers. Nevertheless, each survey inevitably includes items with missing values. When there are incidences of missing values in quantitative data items, such as sales and fixed investment, the current practice is to compile the survey result by imputing the missing value with the "previous fiscal year's value obtained from the non-responding enterprise." This imputation method is thought to be appropriate when the economic environment is stable, as the change in the values between the previous term and the current term is relatively small. On the other hand, during a phase of sharp changes in the economic environment, the result of the compilation may diverge somewhat from the real perception of business conditions, as the previous term's value, which does not appropriately reflect the change during the period, is used without modification. Given the fact that in recent years, there has been a dramatic economic change, such as the one brought about by the Lehman shock, it is worth examining if there are imputation methods which produce a higher degree of accuracy. Against this backdrop, this paper has compared the degrees of statistical accuracy of the current method of missing value imputation of the Tankan and its alternative methods, conducting simulations based on the data for the period from 2004 to 2010. As a result, it was found that for all of the major survey items (i.e., fixed investment, sales and current profits), "there are alternative methods whose degree of accuracy is higher than or about the same as the imputation method now in use." |
| Date: | 2013–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-9&r=mac |
| By: | World Bank |
| Keywords: | Public Sector Corruption and Anticorruption Measures Macroeconomics and Economic Growth - Subnational Economic Development Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Finance and Financial Sector Development - Debt Markets Public Sector Expenditure Policy Public Sector Development |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20051&r=mac |